Licensing options can be broadly classified into two categories. The first is the limited license and the second is a full Australian Financial Services License (AFSL). The former, the limited license, does allow practitioners to talk about setting up or winding an SMSF. With a limited license, accountants can also talk about a product class. But, they do not have the go ahead to discuss a specific product belonging to that class.
AN AFSL as against a limited license
An AFSL, on the other hand, entitles a practitioner to talk about any product within a given class and also puts away with any kind of limitation while discussing a financial service.
Limited license is a “band-aid” product, feels industry experts
Limited license is being seen as a band-aid product because it seals the wound but that is it. It is like going into the battle armed with the basic weaponry and nothing more. Times have certainly changed. Today, the SMSF owners want their trusted friends, the accountants, to talk at length about all sorts of financial products.
So, a limited license is a big handicap when you come to think of it. Those accountants who are not going for a full-fledged AFSL will find their practice lacking the necessary effect and a good number of potential clients will look the other way.
Accountants’ justification for limited license
I know the justification offered by those accountants on limited license. They say that they are not looking for a business expansion and are happy with what they are doing. On the other hand, they do not want to lose clients to referral relationship and so keeping both the sides of the coin in mind, a limited license best suits them.
This, however, seems like forced reasoning, aimed to justify a stance. If you look deeper you will find that times are changing and the dynamics of the financial service is also altering. If accountants are looking to pass on financial advice, the least they can do is to commit themselves completely to the processes and the standards.
Compliance costs and fresh risks attached
When a practitioner speaks on a couple of areas or four at the most, he ties himself, thereby bringing a lot of fresh risks, compliance costs, requirement for supervision, among other things. It will be wise to remember that these costs cannot always be passed on to the clients and the situation, thus, can pretty easily turn into a nightmare for the accountant.
A case in point: why limited license can’t work
Imagine this situation. An accountant is working on a limited license. Now, he has a client who wants to discuss why he needs to leave a product and go for another one or, say, why he needs to choose SMSF over another superannuation fund. What happens in the scenario? The limited license practitioner, regulation-bound not to discuss these specifics, fails to ease the client and in due course of time may even lose the client.
The regulatory scene is fast shifting and the clients are evolving. They want their traditional accountants to wear a new coat and discuss “beyond the basic” investment strategy with them.
Next time you want to talk about a life insurance product and feel restrained by a lack of AFSL, think. Yes, think!